Many people simply compare interest rates when looking for a financing partner for their housing. But it may be helpful to also compare the terms of the mortgage contract.
Did you find the house or apartment of your dreams? Congratulations! It is now a question of realizing your dream of ownership and financing the house or the apartment. In addition to equity, – at least 20% – you will also need borrowed capital, for example from a bank. A contract will be concluded as soon as you and the bank have agreed on the essential points of the financing. In principle, contracts are not subject to any formal obligation. They can therefore even be verbal if there is no specific formal rule governing them, as is the case with mortgage contracts. The written contract then confirms the contract concluded orally. Elements that must appear in any mortgage credit agreement:
- Type of mortgage
- Mortgage amount
- Name of borrower
- Interest rate conditions
- Start of duration
- Payment deadlines
- Termination conditions
- Terms and conditions
- Statement relating to the registration of the right of mortgage
- Building address
Read the information in small print
Read the contract carefully before signing it. Pay particular attention to the termination conditions and the general conditions. The small print indicates, for example, how the early termination of the contract is settled. This is particularly important when interest rates are low and that many prospective owners enter into fixed-rate mortgages with a long term. They want to guarantee their budget in the long term and protect themselves against interest rate hikes but have little awareness of the possible consequences.
The bank invests the money that you prepay on the money or capital market. Generally, the interest there is lower than what you pay him because the margins on the mortgages are higher. Also, most banks require an exit fee in the event of early termination of the contract. This can be costly. Suppose you have a mortgage with a fixed rate of 2.25% over ten years and that, you are transferred abroad after four years. Your bank only receives 1% on the money or capital market for the remaining six years and will charge you the interest differential of 1.25%.
Negotiation pays off
Almost all banks require exit compensation if they experience interest losses, but they are rare in passing on interest gains if they receive higher interest on the money or capital market. You should therefore carefully read the mortgage loan agreement. If you do not agree with certain contract conditions, such as early termination, speak to your bank. Only the legal provisions are compulsory; you can perfectly negotiate the contract conditions or the general conditions. Even though many banks tend to state officially the opposite.
In case, you are unable to understand the conditions of the mortgage contract, then you should hire an expert like PIF Lending to guide you regarding the same.